We moved from London to Italy, where my wife comes from, several years ago. I kept the London flat, and we were using it ourselves from time to time, until last year we decided to let it. Now I am preparing my UK tax return and I am not sure about how to do it. It may be that I need to use an accountant, at least for this first year, and it may be that I should really have got more informed before now, but, well here we are.

I suppose that I will need to tell the tax man how much I rent I received, what expenses I had, and also how much the agency has deducted and presumably already sent him. (I am aware that I could have arranged to be exempt from the tax deduction because I am resident abroad, but I haven't done this because even if it were to reduce the UK tax I would still have to pay Italian tax. Italian tax is always higher than UK, but one deducts any tax actually paid in UK.)

I asked the agency for summary statements of these amounts, and after a couple of tries I think they have sent me all the numbers I need. I'm a bit surprised that they didn't have the figures ready, especially the tax they have paid, because presumably every landlord needs to know this. Shouldn't they have some sort of receipt from the Revenue to confirm the total for the year? And will there be a box on my online tax return where I put this number?

I am also uncertain about what I can claim as expenses. Presumably all the agency fees and VAT on that, and the various repairs that have been done since letting started. Can I also claim for building work and the furnishing that I also paid for via the agency, before the first tenancy?

Rob625 wrote:...I am aware that I could have arranged to be exempt from the tax deduction because I am resident abroad, but I haven't done this because even if it were to reduce the UK tax I would still have to pay Italian tax. Italian tax is always higher than UK, but one deducts any tax actually paid in UK...

I'd urge you to reconsider registering as a Non-Resident Landlord. It's very quick and easy to achieve, puts you in possession of data rather than having to press for others to supply them to you and gives you control of the cash.

If you didn't use an agent then the tenant would be required to withhold tax and account for it to HMRC. Does that strike you as something with which you'd be comfortable? I thought not - so why is an agent a safe bet? Given the well-deserved reputation of the typical letting agent how much faith do you have in your agent? Are you totally satisfied that if their business struggles and/or goes under then all withheld tax will have been fully-accounted for with HMRC in a timely manner? Wouldn't you prefer the cashflow advantages of receiving net rent without tax deducted and accounting for it in the usual manner at the usual time?

You may find that the basis of computation of tax on residential property income in Italy differs significantly from that in the UK (it certainly does in my country of tax residence) - and the 31st December year-end introduces some questions about how one handles overseas income and tax assessed on it which has been (or will be) accounted for in the UK with a 5th April year-end.

Rob625 wrote: Can I also claim for building work and the furnishing that I also paid for via the agency, before the first tenancy?

What was the nature of the 'building work' prior to the first let? Was it essentially repairs and maintenance or did you, for example, alter the layout to turn a 2-bed flat into a 3-bed flat? Did you, say, merely replace kitchen units or did you significantly upgrade them from standard units to flashy, bespoke stuff? A lettings business is, by default, regarded as starting with the first let but in circumstances such as you indicate it would be treated as starting when you commenced the contractual relationship with the agent (and possibly even earlier depending on precise circumstances). Was any of the new furniture (including white goods) 'integrated' or was it all free-standing?

Rob625 wrote:We moved from London to Italy, where my wife comes from, several years ago. I kept the London flat, and we were using it ourselves from time to time, until last year we decided to let it. Now I am preparing my UK tax return...

You don't say whether the flat is jointly owned, but if that is the case I believe the default is that the rent received is also joint, so you would have two tax returns to prepare. I can't give you a definitive answer as my experience is UK-only.

I'd suggest using tax preparation software such as Taxcalc. Costs about £30 a year, and is itself deductible as an expense. Feeds directly into the IR to file your return. Makes a PITA task relatively painless, and I'd trust it versus having to submit base date to an accountant, pay huge fees, then have then send me a draft return to check for accuracy before they submit it [been there etc].

JonE wrote:If you didn't use an agent then the tenant would be required to withhold tax and account for it to HMRC.

This is true but I near guarantee you that 99% of tenants do not know that, and it would never occur to them to withhold tax in that manner.

When I was working overseas contracts and assignments, I continued to rent out various UK properties and this issue quite simply never came up. And if it had, then I would probably not have told the tenant that I was living overseas at all. As long as they have a local contact to handle problems as they arise, then I see no reason to inform a tenant of mine where I happen to be. It's really none of their business and not knowing that relieves them of the obligation that you cite.